Making Super Available To Buy A House Is A Terrible Idea

As the housing affordability debate ramps up, there seems to be one archaic idea that just won’t go away.

A week ago, MP for the inner-Sydney seat of Bennelong John Alexander wrote that first-home buyers should be allowed to tap into their superannuation to purchase their first home.

And yesterday, the minister in charge of solving housing affordability revived the concept. This is not a backbencher. Michael Sukkar is the man responsible for crafting the government’s housing affordability strategy leading into the May budget.

To be fair, Sukkar suggested it could work if packaged with a raft of other measures. But he should rule it out all together.

The idea has been floated before but it’s never been legislated, and for good reason: it is among the worst ideas for solving housing affordability in Australia.

If I was told to design a policy intervention that would decimate the budget over the long term, drive up housing prices, and strategically disadvantage the poorest members of the community, this is the idea I would come up with.

But I don’t think that is the task Michael Sukkar was given.

While addressing housing affordability is inherently complex, there are some basics to the finding a solution which this proposal ignores. The first basic concept is that to address affordability, we need to increase supply.

There is a shortage of housing stock on the market. The vast majority of home purchases — about 93 percent — are existing properties, not new houses, apartments, or units that are bought off the plan.

This is because there is little incentive for doing so, therefore investors naturally gravitate towards existing, tangible assets. This makes sense for investors, and current policy does not generally view new assets any differently to existing ones. This needs be changed so we can build more homes for more home buyers.

Allowing young people to deplete their superannuation to buy a home will increase demand, but do nothing to address supply. It will put upward pressure on prices, not make them more affordable.

Young people simply don’t have enough super for a deposit, anyway

Even if the idea of using superannuation to make a deposit was sensible, the sums don’t add up. The only people who have enough superannuation to afford a deposit in Sydney, for example, are those entering retirement.

A standard 25 to 29 year old has only $16,441 in superannuation. For a 30-34 year old, the mean superannuation holdings are around $30,000. For someone 35-40, around $44,000.

Compare these modest accumulated holdings with a standard 10 percent deposit on homes around the country. In Sydney, an average deposit will be around $85,000; in Melbourne, $65,000; in Brisbane, $50,000; in Adelaide, $45,000; in Perth, $50,000; in Hobart; $35000; in Canberra, $60,000.

Simply, most first-home buyers do not have enough superannuation in their accounts to pay for a deposit, even if they could. If they were allowed to, their superannuation holdings would be decimated, creating budgetary headaches for future treasurers trying to reign in growing age pension costs.

Such a proposal would only benefit young people already wealthy enough to have accumulated significant superannuation savings that exceed national averages.

And in essence, the proposal transfers the retirement funds of today’s younger population to today’s older generation of property owners. While it might help existing property owners liquidate their assets, it would do so at the expense of the retirement funds of future generations.

So the idea of using superannuation to pay for new houses has no place in discussions about housing affordability.

The real solutions lie in incentivising the creation of new supply.

The McKell Institute has been focused heavily on reforming negative gearing and capital gains tax. Investment in housing is obviously vital. But it must be oriented towards the creation of new properties, and not in inflating the costs of existing ones.

Michael Sukkar and Malcolm Turnbull must rule out the undermining of Australia’s superannuation system as a quick political fix for the growing housing affordability crisis.